- During my daily analysis of the major currency pairs around the world, the USD/JPY pair continues to be one that I am watching very closely.
- After all, the market is one that has a lot of external pressures, due to the central banks and their divergence of monetary policy.
- On one hand, he of the Bank of Japan which is seemingly powerless to do anything too tight monetary policy, and on the other hand you have the Federal Reserve which will more likely than not cut interest rates by 25 basis points next week but will remain still after that.
Technical Analysis
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The technical analysis for this USD/JPY pair is somewhat bullish, after what has been a base building exercise near the ¥150 level. This is an area that of course will attract a lot of attention, and the fact that the 200 Day EMA is sitting right there has a lot to bring to the table as well. This is a market that has recently been very noisy, as the dreams of a tightening central bank in Tokyo came and went. Because of this, I pay close attention to the 50 Day EMA as a potential support level. Just above current trading, we have the ¥153 level offering resistance. A break above that opens up the possibility of a move to the ¥156 level.
The alternate scenario would be that we break down but it’s really not until we get to the ¥148.50 level that you can make that argument, and even then, I would be a bit hesitant whether or not I should be shorting. The market remains very noisy, and of course the interest rate differential continues to favor the United States, and in that environment all things being equal, we continue to go higher over the longer term.
I look at the recent pullback as more likely than not just the market catching its breath after the spectacular run from ¥140 to the ¥156 region. A pullback to the ¥150 region was an out of bounds per se, and we are starting to see traders come in and take advantage of “cheap US dollars.” As things stand right now, I expect to see more of this in the future.
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